Trump Misleads on High U.S. Drug Costs

It’s true, as President Donald Trump says, that branded prescription drugs are generally cheaper outside the U.S. But he distorts the facts when he says, “as usual, the world is taking advantage of us.”

Prescription drug pricing experts say Trump’s gripe is with pharmaceutical companies and U.S. legislators who balk at such cost-controlling measures as having the federal government negotiate drug prices for Medicare.

The president also is cherry-picking when he says U.S. prices are “double, triple, quadruple” what other countries pay. Some drugs may have price disparities that high, but experts say the overall difference from other countries isn’t that large.

Trump’s comments about the cost of prescription drugs relative to other countries came during a cabinet meeting on Oct. 16.

Trump, Oct. 16: The other thing we’re doing that relates to people’s lives is the prescription drug prices are out of control. The drug prices have gone through the roof. And if you look at the same exact drug by the same exact company, made in the same exact box and sold someplace else, sometimes it’s a fraction of what we pay in this country — meaning, as usual, the world is taking advantage of the United States. They’re setting prices in other countries and we’re not.

The drug companies, frankly, are getting away with murder, and we want to bring our prices down to what other countries are paying, or at least close and let the other countries pay more. Because they’re setting such low prices that we’re actually subsidizing other countries, and that’s just not going to happen anymore.

This has been going on for years where our people are paying so much more for it. And I don’t mean they’re paying 2 percent more; I mean they’re paying double, triple, quadruple. They’re paying so much more that it’s very unfair to the United States, as usual.

Prescription drug experts say it is broadly accurate that branded prescription drug prices are higher in the U.S. than other countries, though they say Trump is stretching, or cherry-picking, when he says prices are “double, triple, quadruple” what people pay in other countries.

“There are instances in which a drug in the U.S. is 4 times the amount it is in, say, Germany. But, on average the branded drug prices in the U.S. and Germany are not nearly that different,” said Joshua P. Cohen, an independent health care consultant formerly of the Tufts Center for the Study of Drug Development.

“I’d say that on average, across all branded products, branded prices are currently between 10 percent and 40 percent more expensive in the U.S. than similarly industrialized [countries] internationally,” Cohen said, based on several studies he has done over the years.

Experts in drug pricing warn that comparisons between countries are inherently complicated, in part because of proprietary discounts offered by pharmaceutical companies to various buyers.

A 2013 study published by Health Affairs found that prices for a selection of brand-name drugs were 5 percent to 117 percent higher in the U.S. compared with six other countries in the study. Another analysis by Bloomberg in 2015 looked at eight top-selling branded drugs and found that, even with discounts, those drugs were being sold in the U.S. for significantly higher prices — in some cases double or even triple the rate in other industrialized countries.

We should also note that these comparisons are for prices of branded drugs. That does not account for cheaper generic drugs, which account for about 84 percent of filled prescriptions in the U.S. Generic drugs tend to be cheaper in the U.S. than in other countries, Cohen said, and so a proper comparison would include both branded and generic drugs.

Nonetheless, there is broad consensus that branded drugs cost more in the U.S.

Advantage: World?

Trump says this means, “as usual, the world is taking advantage of the United States.” But experts say the U.S. is responsible for the high cost of drug prices, not other countries.

“It is more the drug companies that are taking advantage of the U.S.” Glen T. Schumock, director of the Center for Pharmacoepidemiology and Pharmacoeconomic Research at the University of Illinois at Chicago, told us via email. “We allow the drug companies to do this by not regulating drug prices. Other counties are just doing what makes sense, and what we should do. The drug companies will claim that they need the high prices in the U.S. to pay for new drug development. But most of the profit is not invested in R&D, and recent evidence shows that the cost to develop a new drug is actually much lower than they claim.”

In the U.S., elected officials — mostly Republicans — have been reluctant to enact regulations to control drug prices, Schumock said. “The argument is that price controls will prevent innovation and new drug development.”

That’s not how it works in other countries. Most other developed countries have a centralized health care system that allows the government to negotiate drug prices with the pharmaceutical companies.

“The government of those countries tells the drug company what the price will be,” Schumock said. “If the company doesn’t like it their only choice is to not sell it there. Most of the time they sell it at that price because they are still making money even with the low price. They certainly wouldn’t sell the drug if they were losing money.”

Or, as Dr. Peter B. Bach, director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, wrote to us in an email, “Firms are never required to sell a product in to any country, so what France pays is a decision between the firm and France, it has no relation to what we pay. Put another way, the firm will seek to maximize in France regardless.”

Trump’s argument “would suggest that firms would lower their prices in France (as an example) if we paid more here,” Bach said. “There is no economic reason for this to happen. Rather, companies clearly find it long term profitable to sell at the prices they do sell at in Western countries.”

Bach also takes issue with the president’s characterization that “they’re setting prices in other countries and we’re not.”

“Price setting conceptually only applies when there is truly a monopsonistic buyer that has complete control over the potential market for the seller,” Bach said. “What actually happens, and this varies somewhat by country but still, is that the country exercises some market power and a lot of discretion, being willing to say ‘No’ to products due to a disconnect between their price and their benefit. There are many versions of how they do this, but the core principle is that they are willing to say, ‘No.'”

Trump’s claim that the U.S. is “subsidizing” the cost in other countries suggests that Americans are paying too much to make up for losses in other countries, Bach said. “That is wrong in all likelihood because firms would simply choose not to sell at a loss.”

“More important,” Bach said, “it is often said we subsidize the industry by paying for their R&D [research and development].”

But research he co-authored earlier this year found that drug companies spent much less on R&D than steeper prices in the U.S. could potentially fund. “The premiums pharmaceutical companies earn from charging substantially higher prices for their medications in the US compared to other Western countries generates substantially more than the companies spend globally on their research and development,” Bach’s study said. Specifically it concluded that the extra amount paid for drugs by U.S. consumers paid for 1.7 times the worldwide R&D expenses.

Schumock said that while it may not be correct to say the U.S. subsidizes other countries, “we do pay for a lot of research” via the National Institutes of Health and other agencies “that leads to new drug innovations that ultimately benefits patients throughout the world.”

A Commonwealth Fund analysis published on Oct. 5 looked at prescription drug spending in 10 high-income countries and concluded that, with “substantially higher” drug prices in the U.S., it may be time to allow the federal government to negotiate lower drug prices for Medicare beneficiaries. The authors note that the Veterans Health Administration and the Department of Defense “are the only federal entities allowed to effectively negotiate directly with drug manufacturers; they pay prices that are roughly half of those paid at retail pharmacies.”

“One reason U.S. prescription drug prices are higher may be the relative lack of price control strategies,” the authors wrote. “Unlike the U.S., many other countries employ centralized price negotiations, national formularies, and comparative and cost-effectiveness research for determining price ceilings. In the U.S., health care delivery and payment are fragmented, with numerous, separate negotiations between drug manufacturers and payers and complex arrangements for various federal and state health programs. And, in general, the U.S. allows wider latitude for monopoly pricing of brand-name drugs than other countries are willing to accept.”

Trump’s Proposal?

Trump said that “we want to bring our prices down to what other countries are paying.” But he did not say what measures he was supporting, and whether they would include, for example, allowing Medicare to negotiate drug prices or allowing the purchase of drugs from other countries like Canada — ideas that have generally been promoted by Democrats.

We reached out to the White House press office for clarification on what exactly Trump is proposing, but we did not hear back.

During the primary campaign, Trump twice said during Republican debates that pharmaceutical companies “are not mandated to bid properly.”

Trump, GOP debate, March 10, 2016: Look, I’m just saying very simply we have a country that I’ve never seen anything like it. I’ve been going over budgets and looking at budgets. We don’t bid things out. We don’t bid out, as an example, the drug industry, pharmaceutical industry. They don’t go out to bid. They just pay almost as if you walk into a drug store. That’s what they’re paying. And the reason is they have a fantastic lobby. They take care of all of the senators, the congressmen. They have great power and they don’t bid out.

In a press conference after his election victory (but before his inauguration), Trump reiterated his call for Medicare to negotiate drug prices.

“The other thing we have to do is create new bidding procedures for the drug industry, because they’re getting away with murder,” Trump said in early January. “We’re the largest buyer of drugs in the world, and yet we don’t bid properly and we’re going to start bidding and save billions of dollars over a period of time.”

Reporting on his comments, the Hill noted that the “issue could create a divide with congressional Republicans, who, with some exceptions, oppose the idea.”

Trump’s comments caught the attention of Sen. Bernie Sanders, who unsuccessfully sought the Democratic nomination. Sanders said Trump was right and suggested Trump may have even gotten the idea from him.

“He means ‘negotiating,’” Sanders said. “And if he’s up for negotiating, of course we have to do that. The VA does that and their prices are lower than for Medicare and other government agencies.”

“The question is whether Trump and his Republican colleagues have the guts to take on one of the most powerful industries in America,” Sanders said. “It’s not gonna be done, of course.”

That Trump again appears to be open to price controls in the U.S. is “remarkable,” Cohen, the health care consultant, told us.

“I assume that by setting prices the president is referring to price controls,” Cohen said. “That would go against U.S. policy on drug pricing, which has left it mostly to market forces.”